Holding

The 46th Amendment was validly ratified, and State sales‑tax levies on transfers of property in goods under works contracts are subject to all the restrictions and conditions of Article 286 and the Central Sales Tax Act.

Summary

The Builders Association of India and other contractors challenged the levy of sales tax by several State governments on the turnover of works contracts after the Constitution (Forty‑sixth Amendment) Act, 1982 introduced clause 29A to Article 366, deeming the transfer of property in goods used in works contracts a "sale". They raised two questions: (1) whether the 46th Amendment was constitutionally valid because it was allegedly not ratified by the requisite number of States, and (2) whether State tax statutes levying tax on such transfers must comply with the restrictions in Article 286 and the Central Sales Tax Act, 1956. The Court held that the amendment had been duly ratified, satisfying the proviso to Article 368(2). It further held that all sales‑tax levies on transfers of property in goods involved in works contracts are subject to every restriction and condition of Article 286, including the special provisions for declared goods under the Central Sales Tax Act. Consequently, the State tax assessments that ignored these constitutional limits were invalid. The writ petitions were disposed of, and the related civil appeals were directed to the appropriate tax bench for further consideration.

Issues considered

The Constitution (Forty‑sixth Amendment) Act, 1982, was it ratified by the required number of State legislatures as mandated by the proviso to Article 368(2)?
Do State sales‑tax statutes levying tax on the transfer of property in goods involved in works contracts fall within the restrictions and conditions of Article 286 of the Constitution and the Central Sales Tax Act, 1956?

Legislation cited

Central Sales Tax Act, 1956s. Section 14, s. Section 15, s. Section 4, s. Section 6
Constitution (Forty‑sixth Amendment) Act, 1982
Constitution of Indias. Article 269, s. Article 286, s. Article 366(29A), s. Article 368(2), s. Entry 54 List II, s. Entry 92A, s. Entry 92F

Judgment

BUILDERS ASSOCIATION OF INDIA & ORS. ETC. ETC.
A
v..
UNION OF INDIA & ORS. ETC. ETC.

MARCH 31, 1989

B [R.S. PATHAK, CJ, E.S. VENKATARAMIAH, }-
RANGANATH MISRA, M.N. VENKATACHALIAH AND
N.D. OJHA, JJ.] f-
Constitution of India 1950: Articles 286, 366(29A) and Seventh '
Schedule List II Entry 54-Constitutional validity of Constitution
(Forty-sixth Amendment) Act 1982-Validity of-Power of State legis-
c lature to levy tax on the transfer of property in goods involved in the --4 -
execution of works contracts-Suggestion that Amendment Act should
be prefaced by statement that it had been duly ratified by the States.

Words and Phrases: "Building Contracts"-Works contracts-
0 What are.
The petitioners in the writ petition are building contractors en-
gaged in the business of constructing buildings, factories, bridges etc.
They have challenged the levy of sales tax, by the concerned State +
Governments under the sales tax laws passed by them, on the turnover
E of the works contracts entered into by them.

The petitions raised two questions for the consideration of the
Court; the first question relates to the constitutional validity of the 46th
-
Amendment Act by which the State legislatures have been empowered
to levy sales tax on certain transactions described in sub-clauses (a) to
,._.
F (f) of clause (29-A) of Article 366 of the Constitution, and the second
question is whether the power of the State legislature to levy tax on the
transfer of property in goods involved in the execution of works con- ~
tracts referred to in sub-clause (b) of clause (29A) of Art. 366 of the '
Constitution is subject to the restrictions and conditions in Art. 286 of
the Constitution.
G r-
On the passing of the 46th Amendment, the State Governments
after making necessary amendments in their laws commenced to levy
sales tax on the turn-over of the works entered into by the building
contractors for constructing houses, factories, bridges etc. In some
States taxable turnover was determined by deducting the money spent
H on labour engaged in connection with the execution of the works con-
320
BUILDERS ASSCN. v. U.0.1. 321

tracts. In some other States .a certain fixed percentage of the total A
turnover was deducted from the total turnover as labour charges before
arriving at the taxable turnover. Each State adopted its own method of
determining taxable turnover either by framing mies under its sales tax
law or by issuing administrative directions.

Affected and aggrieved by the levy of sales tax so imposed, the B
petitioners tiled the writ petitions under Art. 32 of the Constitution
challenging inter alia the Constitutional validity of the 46th Amendment
Act. Civil appeals were also tiled by some other building contractors
against the orders of the High Court for similar relief.

The petitioners and the appellants have raised two contentions; c
viz (1) that the 46th Amendment Act is uncollStitutional because it bad
not" been ratified by the legislatures ofnot less than one-halfof the states
by Resolutions passed to that effect by these legislatures before the Bill
which led to the amendment in question was presented to the President
for assent; and (2) that it was not open to the States to ignore the
provisions contained in Art. 286 of the Constitution and the provisions D
of the Central Sales Tax Act, 1966 while making assessment under the
Sales Tax laws passed by the legislatures of the States.

Notices were issued to the Attorney General for India and the
Advocates General for the concerned States, some of which contested
the Issues. E

The main contention of the States on the second point was that
sub-clause (b) of Article.32"ii(29 A) bestowed on them a power to levy tax
on works contract independent of Entry 54 of List II.

Disposing of the Writ Petitions and directing that the appeals be F
now placed before the Bench hearing Tax matters, this Court,

)-. HELD. There has been in the instant case due compliance of
the provisions contained in the proviso to Art. 368(2) of the Consti-
tution. [344E]
G
Sales tax laws passed by the legislatures of States levying taxes on
the transfer of property in goods-whether as goods or in some other
form-involved in the execution of a works contract are subject to the
restrictions and conditions mentioned in each clause of sub-clauses of
Art. 286ofthe Constitution. [355B]
H
322 SUPREME COURT REPORTS [1989] 2 S.C.R.

All transfers, deliveries and supplies of goods referred to in
clauses (a) to (f) of clause (29-A) of Art. 366 of the Constitution are
subject to the restrictions and conditions mentioned in clause (1), clause
(2) and sub-clause (a) of clause (3) of Art. 286 of the Constitution and
the transfers and deliveries that take place under sub-clauses (b), (c)
and (d) of clause (29-A) of Art. 366 of the Constitution are subject to an
B additional restriction mentioned in sub-clause (b) of Art. 286 (3) of the
Constitution. [349C J

The power to levy sales-tax was conferred on the legislatures of
States by the Constitution by Entry 54 of List II of the Seventh Schedule
to the Constitution of India. {329B]
c State of Bombay and Another v. The United Motors (India) Ltd.
and Others, [1953] S.C.R. 1069 and Bengal Immunity Company
Limited v. The State of Bihar & Others, [195512 S.C.R. 503, referred
to.

D Ordinarily unless there is a contract to the contrary in the case of
a works contract, the property in the goods used in the construction of a
building passes to the owner as the mate_rials used are incorporated in
the buildings. The contractor becomes liable to pay the sales tax ordi-
narily when the goods or materials are so used in the construction of the
building and it is not necessary to wait till final bill is prepared for the
E entire work. [352C]

Hudson's Building Contracts (8th Edition) at page 362 and Benja-
min's Sale of Goods (3rd Edition) in para 43 at page 36. -
The constitutional-Amendment in Art. 366 (29-A) read with the
F relevant taxation entries has enabled the States to exert its taxing power
in an important area of social and economic life of the community. In
exercising this power particularly in relation to transfer of property in
goods involved in the execution of "works-contracts" in building acti-
vity, in so far as it affects the housing projects of the under-privileged
and weaker sections of society, the State might perh_aps, be pushing its
G taxation power to the peripheries of the social limits of that power and
perhaps even of the constitutional limits of that power, in dealing with
unequals. In such class of cases 'building Activity' really relates to a
basic subsistential necessity. It would be wise and appropriate for the
State to consider whether the requisite and appropriate classifications
should not be made of such building-activity attendant with such social
H purposes for appropriate separate treatment. [355E-G I
BUILDERS ASSCN. v. U.0.1. 323

Whatever might be the situational differences of individual cases,
A
the constitutional limitations on the taxing power of the State as are
applicable to "works-contracts" represented by "building-contracts"
in the context of the expanded concept of "tax on the sale or purchase of
goods" as constitutionally defined under Art. 366 (29-A) would equally
apply to other species of "works-contracts" with the requisite situa-
tional modifications. [355C-D I B
~
~ At the commencement of the Act it should have been stated that
· the bill in question had been presented to the President for his assent
after it had been fully ratified by the required number of legislatures of
the States. This suggestion should be followed by the Central Secre-
tariat hereafter since it was found that even the Attorney General was
not quite aware till the case was taken up for hearing that the bill which c
~ ~ had become the 46th Amendment had been duly ratified by the required
num'1er of States. [344F]

Gannon Dunkerley and Co. (Madras) Ltd. v. State of Madras,
A.LR. 1954 Mad. 1130; Gannon Dunkereley & Co. Madras (Pvt.) Ltd. D
v. Sales Tax Officer, Mattancheri, A.I.R. 1957 Kerala 146; Mohamed
Khasim v. State of Mysore, [1955] VI Sales Tax Cases 211; Pandit
Banarsi Das v. State of Madhya Pradesh and Ors., [1955] VI Sales Tax
Cases 93; Jubilee Engineering Co. Ltd. v. Sales Tax Officer, Hydera·
bad City & Ors., A.I.R. 1956 HYO. 79; Bhuramal and Ors. v. State of
Rajasthan, A.LR. 1957 Rajasthau 104; State of Madras v. Gannon E
Dunkerley & Co. (Madras) Ltd., [19551 S.C.R. 379; M/s. New India
Sugar Mills Ltd. v. Commissioner of Sales Tax, Bihar, [1963] Supp. 2
• SCR 459; Oil and Natural Gas Commission v. State of Bihar & Ors.,
[197711 SCR 354; Vishnu Agencies (Pvt.) Ltd. etc. v. Commercial Tax
Officer & Ors. etc., [1978] 2 SCR 433; Northern India Caterers (India)
Ltd. v. Lt. Governor of Delhi, [1979] 1 SCR 557; Sydney.Hydraulic F
and Central Engineering Co. v. Blackwood & Son, 8 N SWR 10 and
M.R. Bornibrook (Pvt.) Ltd. v. Federal Commissioner of Taxation,
f-. .[1939 I 62 C.L.R. 272.
ORIGINAL JURISDICTION: Writ Petition '(Civil) No. 1060 of
1987 etc. etc. G

(Under Article 32 of the Constitution of India)

K. Parasaran, Attorney General, G. Ramaswamy, Additional
Solicitor General, N .A. Palkhiwala, Kapil Sibal, A.K. Ganguli, A.K. ·
Sen. Shanti Bhushan, Raja Ram Aggarwal, Dr. Shankar Gho~h, H
324 SUPREME COURT REPORTS [1989] 2 S.C.R.

A Tapas Ray, Devi Pal, B. Sen. G. A. Shah, Ashwani Kumar, Yogesh- ,/...
war Prasad, P.A. Choudhary, Dr. L.M. Singhvi, S.K. Dholakia, R.N.
Sachthey, A.B. Misra, P.S. Poti, R.N. Narasimha Murty, N.N.
Gooptu, Advocate Generals, R.P. Gupta, S. Krishan, J.B.
Dadachanji, D.N. Mishra, Mrs. A.K. Verma, Vijay Hansaria, Sunil
K. Jain, A.T.M. Sampath, P.N. Ramalingam, C. Natarajan, N.
B Inbrajan, M.S. Singh, K.K. Gupta, N.B. Sinha, Sanjeev B. Sinha, ~
Yogendra B. Sinha, Ms. Madhu Khatri, Ms. Bina Gupta, K.N. Rai,
Ms. Panaki Misra, Harish Salve, Ajay K. Jain, Pramod Dayal, K.M. ,l
Vyayar, Badar Durraj Ahmed, Parijat Sinha, J.R. Das, P.R. Seetha-
raman, Ranjit Kumar, A. Sharan, J.D. Jain, C.S. Vaidyanathan, B.R.
Setia, N.N. Keswani, R.N. Keswani, Pramod Dayal, Dilip Tandon,
R.B. Mehrotra, M.C. Dhingra, M. Qamaruddin, Ashok Kumar
c Gupta, M.M. Kashyap, S.B. Upadhya, R.N. Karanjawala, Mrs. J
Manik Karanjawala, G.S. Vasisht, S.K. Gambhir, Amlan Ghosh, -i -
A.K. Singla, K.K. Khurana, L.K. Pandey, Mahabir Singh, E.C.
Agarwala, Ms. Pumima Bhatt, Vineet Kumar, K.J. John, Ms. Naina
Kapur, Ms. Hemantika Wahi, Sarva Mittar, P.K. Jain, Ms. A.
D Subhashini, B.V. Decra, M.N'. Shroff, R. Mohan, R.A. Perumal,
R.N. Patil, S.K. Agnihotri, Ashok K. Srivastava, Manoj Swamp,
Pramod Swamp, T.V.S.N. Chari, S.K. Dhingra, A.M. Khanwilkar,
A.S. Bhasme, Anip Sachthey, P.N. Misra, Ajay K. Jha, K.R.
Nambiar, P.R. Ramasesh, N.K. Puri, P.R. Monda!, M.P. Jha, Sushi! --J..
Kumar Jain, S.R. Grover, M.P. Sharma, S.K. Nandy, D. Goburdhan,
El A. Subba Rao, K. Swami, U.S. 'Prasad, M. Veerappa, R.K. Mehta,
andNaresh K. Sharma for the appearing parties.

The Judgment of the Court was delivered by -
VENKATARAMIAH, J. Jn this batch of Writ Petitions and Civil
Appeals two questions arise for consideration. The first question
relates to the constitutional validity of the Constitution (Forty-sixth
Amendment) Act, 1982 (hereinafter referred to as 'the 46th Amend-
ment') by which the Legislafores of the States were empowered to levy ~
sales tax on certain transactions described in sub-clauses (a) to (f) of
clause: (29-A) of Article 366 of the Constitution and the second ques-
0 tion is whether the power of the State Legislature to levy tax on the
transfer of property in goods involved in the execution of works con-
tracts referred to in subcclause (b) of clause (29-A) of Article 366 of
the Constitution is subject to the restrictions and conditions contained
in Article 286 of the Constitution.

H .An account of the history of the relevant constitutional and
BUILDERS ASSCN,·;v. U.0.1. [VENKATARAMIAH, J.] 325
., ~··
Jr. statutory provisions and of judicial decisions having a bearing on the
A
said provisions has to be set out at this stage to appreciate· the conten-
lions of the parties. Prior to the commencement of the Constitution of
India the power to levy sales tax had been conferred on the Provincial
Legislatures by Entry 48 of the List II of the Seventh Schedule to the
Government of India Act, 1935 which read as "Taxes on the sale of
goods and on advertisements". In exercise of the said power some of B
-l the Provincial Legislatures had passed laws levying sales tax on the
sale or purchase of certain commodities. There was no specific restric~

a
'"" tion or condition on the exercise of the said power under the Govern-
ment of India Act, 1935. The Provincial Legislatures exercised the
power to levy sales tax acting on the principles of the territorial nexus,
thatis to say, they picked out one or more of the ingredients constitut-
ing a sale and made them the basis of the levy of sales tax under the c
-~ legislation. Assam and Bengal made among other things the actual
existence of the goods in the province at the time of the contract of sale
the test of taxability. In Bihar the production or manufacture of the
goods in the Province was made an additional ground. A net of the
widest range perhaps was laid in Central Provinces and Berar where it D
was sufficient if the goods were actually found in the Province at any
time after the contract of sale or purchase in respect thereof was made.
Whether the territorial nexus put forward as the basis of the taxing
'
Jr power in each case would be sustained as sufficient was a matter of
doubt not having been tested _in a court of law. Such claims to taxing
power led to multiple taxation of the same transaction by different E
Provinces and cumulation of the burden falling ultimately on the con-
suming public. By the time the Constituent Assembly took up for
.consideration the provisions relating to the power of the State Legisla-
lures to levy sales tax the difficulties created by the sales tax laws
~ passed by the various Provinces and their effect on inter-State trade
and commerce had come to be felt throughout the country. In order to F
minimise the adverse effects of the sales tax laws passed by the Legisla-
tures of States the Constituent Assembly enacted Articles 236, 301 and
f · 304 of the Constitution. Introducing an amendment to Article 264-A
to the draft Constitution, which ultimately became Article 286 of the
Constitution of India, Dr. Ambedkar observed on the floor of the
Constituent Assembly thus: G
~-t

"Sir, as everyone knows, the sales tax has created a
great deal of difficulty throughout India in the matter of
freedom of trade and commerce. It has been found that the
very many sales taxes which are levied by the various Pro-
vincial Governments either cut into goods which are the H
326 SUPREME COURT REPORTS [1989] 2 S.C.R.

subject matter of imports or exports, or cut into what is
;+,.
A
called inter-State trade or commerce. It is agreed that this
kind of chaos ought not to be allowed and that while the
provinces may be free to levy the sales tax there ought to be
some regulations whereby the sales tax levied by the pro-
vinces would be confined within the legitimate limits which
B are intended to be covered by the sales tax. It is, therefore,
felt that there ought to be some specific provisions laying ~
down certain limitations on the power of the provinces to _l
levy sales tax.

The first thing that I would like to point out to the
House is that there are certain provisions in this article'
c 264A which are merely reproductions of the different parts
of the Constitution. For instance, in sub-clause (1) of arti- i-
cle 264A as proposed by me, sub-clause (b) is merely a
reproduction of the article contained in the Constitution,
the entry in the Legislative List that taxation of imports and
D exports shall be the exclusive province of the Central
Government. Consequently so far as sub-clause (l)(b) is
concerned there cannot be any dispute that this is in any
sense an invasion of the right of provinces to levy sales tax.
-.J..
Similarly, sub-clause (2) is merely a reproduction of
E Part XA which we recently passed dealing with provisions
regarding inter-State trade and commerce. Therefore so far
as sub-clause (2) is concerned there is really nothing new in
it. It merely says that if any sales tax is imposed it shall not
be in conflict with the provisions of Part XA.
·-r-
F With regard to sub-clause (3) it has also been agreed
that there are certain commodities which are so essential
for the life of the community throughout India that they
should not be subject to sales tax by the province in which -\
they are to be found. Therefore it was felt that if there was
any such article which was essential for the life of the com-
G munity ihrougbout India, then it is necessary that, before
the province concerned levies any tax upon such a com-
r
modity, the law made by the province should have the
assent of th!! President, so that it would be possible for the
President and the Central Government to see that no hard-
ship is created by the particular levy proposed by a particu-
H lar province.
BUILDERS ASSCN. v. U.0.1. IVENKATARAMIAH, J.] 327
'
.+ The proviso to sub-clause (2) is also important and
A
..
'!;~
the attention of the House might be drawn to it. It is quite
true that some of the sales taxes which have been levied by .
the provinces do not quite conform to the provisions con-
tained in article 264-A. They probably go beyond the pro-
visions. It is therefore felt that when the rule of law as
embodied in the Constitution comes into force· all laws B
-1 which are inconsistent with the provisions of the Constitu-
~ tion shall stand abrogated. On the date of the inauguration
of the Constitution this might create a certain amount of
financial difficulty or embarrassment to the different pro-
vinces which have got such taxes and on the proceeds of
which their finances to a large extent are based. It is there-
fore proposed as an explanation to the general provisions c
-} of the Constitution that notWithstanding the inconsistency
of any sales tax imposed by any province with the provi-
sions of article 264A, such a law will continue in operation
until the 31st day of March 1951, that is to say, we practi-
cally propose to give the provinces a few months more to D
make such adjustments as they can .and must in order to
bring their law into conformity with the provisions of this
article."

+ Article 286 of the Constitution, as it was originally enacted, read
as follows: E

- "286. Restrictions as to imposition of tax on the sale or
purchase of goods-(1) No law of a State shall impose, or
authorise the imposition of, a tax on the sale or purchase of
goods where such sale or purchase takes place-
--.... F

. (a) outside the State; or

(b) in the course of the import of the goods into, or
export of the goods out of, the territory of India.

Explanation-For the purposes of sub-clause (a), a. G
-~ sale or purchase shall be deemed to have taken place in the
State in which the goods have ·actually been delivered as a
direct result of such sale or purchase for the purpose of
consumption in that State, notwithstanding the fact that
under the general law relating to sale of goods the property
in the goods has by reason of such sale or purchase passed H
in another State.
328 SUPREME COURT REPORTS [1989) 2 S.C.R.

(2) Except in so far as Parliament may by law other-
A
wise provide, no law of a State shall impose, or authorise
the imposition of, a tax on the sale or purchase of any
goods where such sale or purchase takes place in the course
of inter-State trade or commerce.

B Provided that the President may by order direct that
any tax on the sale or purchase of goods which was being
lawfully levied by the Government of any State imme-
diately before the commencement of this Constitution
shall, notwithstanding that the imposition of such tax is
contrary to the provisions of this clause, continue to be
levied until the thirty-first day of March, 1951.
c
(3) No law made by the Legislature of a State impos-
ing, or authorising the imposition of, a tax on the sale or
purchase of any such goods as have been 'declared by Parli-
ament by law to be essential for the life of the community
D shall have effect unless it has been reserved for the cu»si-
deration of the President and has received his assent."

Articles 301 and 304 of the Constitution which were incorporated
in Part XIII of the Constitution read thus:

E "301. Freedom of trade, commerce and inter-
course-Subject to the other provisions of this Part, trade,
commerce and intercourse throughout the territory of
India shall be free"

"304. Restrictions on trade, commerce and inter-
F course among States-Notwithstanding anything in article
301 or article 303, the Legislature of a State may by law-

(a) impose on goods imported from other States any
tax to which similar goods manufactured or pro-
duced in that State are subject, so, however, as
G not to discriminate between goods so imported
and goods so manufactured or produced; and

(b) impose such reasonable restrictions on the free-
dom of trade, commerce or intercourse with or
without that State as may be required in the
H public interest:
BUILDERS ASSCN. v. U.0.1. (VENKATARAMIAH, J.] 329

Provided that no Bill or amendment for the purpose of
clause (b) shall be introduced or moved in the Legislature A
of a State without the previons sanction of the President."

The Power to levy sales tax was conferred on the Legislatures of
States by the Constitution by Entry 54 of List II of the Seventh
Schedule to the Constitution of India which, as originally enacted, B
read thus:

- "54. Taxes on the sale or purchase of goods other than
newspaper."

The power to levy tax on purchase of goods was expressely stated in
Entry 54 even though it was implicit in the expression "taxes on the c
sale" which was found in Entry 40 of List II of the Seventh Schedule to
the Government of India Act, 1935. In exercise of the power conferred
on it by Entry 54 of the State List the Legislature of Bombay passed an
Act called the Bombay Sales Tax Act, 1952 which imposed a _Jleneral
tax on every dealer whose turnover in respect of sales within .the State D
of Bombay during the prescribed period exceeded Rs.30,000 an.d a
special tax on every dealer whose turnover in respect of sales of special
goods made within the State of Bombay exceeded Rs.5,000 during the
prescribed period. The term 'sale' was defined as meaning any transfer
of property in goods for cash or deferred payment or other veluable
. consideration, and an Explanation to this definition provided that the E
- sale of any goods which have actually been delivered 1n the State of
Bombay as a direct result of such sale for the purpose of consumption
in the said State shall be deemed, for the purposes of the Act, to have
taken place in the said State irrespective of the fact that the property in
the goods has, by reason of such sale, passed in another State. Rules 5
and 6 of the Bombay Sales Tax Rules, 1952, which were brought into F
force on the same day on which sections 5 and 10 of the Bombay Sales
Tax Act came into force provided for the deduction of the following
sales in calculating the taxable turnover, viz., sales which took place
(a) in the course of the import of the goods into, or the export of the
goods out of, the territory of India, and (b) in the course of inter-State
trade or commerce (being the two kinds of sales referred to clauses G
(l)(b) and (2) respectively of Article 286 of the Constitution). Rule
5(2)(i), however, required, as a conditfon of the aforesaid deductions,
that the goods should be consigned by a railway, shipping or aircraft
company or country boat registered for carrying cargo or public motor
transport service or by registered post. In an application made under
Article 226 of the Constitution challenging the validity of the said Act H
330 SUPREME COURT REPORTS [1989] 2 S.C.R.

A and praying inter alia for a writ against the State of Bombay and the
Collector of Sales Tax, Bombay, restraining them from enforcing the
provisions of that Act, the High Court of Bombay held that the defini-
tion of 'sale' in that Act was so wide as to include the three categories
of sale exempted by Article 286 of the constitution from the imposition
of tax by the States and thus not valid. On appeal to this Court the
B decision of the High Court of Bombay was reversed by the majority in
the State of Bombay and Another v. The United Motors (India) Ltd.
and Others, [1953] S.C.R. 1069. Soon doubts came to be entertained
about the correctness of the above decision and this Court got the
opportunity to reconsider the correctness of the decision in the United
Motors case (Supra) in the Bengal Immunity Company Limited v. The
C State of Bihar and Others, [1955 I 2 S.C.R. 503.

In the case of the Bengal Immunity Company Ltd. (supra) the
majority held that the operative provisions of the several pa,ts of
Article 286 of the Constitution, namely, clause l(a), clause l(b) and
clauses 2 and 3 were intended to deal with different topics and one.
D could not have projected or read into another. The bans imposed by
Article 286 of the Constitution on the taxing powers of the States were
independent and separate and each one of them had to be got over
before a State Legislature could impose tax on transactions of sale or
purchase of goods. The Explanation to Article 286(1)(a) determined
by the legal fiction created therein the situs of the sale in the case of
E transactions coming within that category and once it was determined
by the application of the Explanation that a transaction was outside
the State, it followed as a matter of course that the State, with refer-
ence to which the transaction could thus be predicated to be outside it,
-
could never tax the transaction. After the judgment in the Bengal
Immunity Company Ltd. 's (supra) case on the recommendations of the
F Taxation Enquiry Commission as regards the amendment of the con-
stitutional provisions relating to sales tax, Parliament passed the Con-
stitution (Sixth Amendment) Act, 1955 which received the assent of
the President on 11th September, 1956. By the said amendment the
Constitution was amended in the following way. In List I of the
Seventh Schudule to the Constitution En try 92A was added. It reads as
G follows:

"92A. Taxes on the sale or purchase of goods other than
newspapers, where such sale or purchase takes place in the
course of Inter-State trade or commerce."

H In List II existing Entry 54 was substituted by the following
entry:
BUILDERS ASSCN. v. U.0.1. IVENKATARAMIAH, J.] 331

"54. Taxes on the sale or purchase of .goods other than A
newspapers subject to the provisions of entry 92A of List
I."

Article 269 of the Constitution which em1merated the taxes that
were to be levied and collected by the Government of India but were
to be assigned to the States was amended by adding sub-clause (g) to · B
\ clause (1) and clause (3) to it. After such amendment Article 269 read
_,4, thus:

"269. (1) The following duties and taxes shall be levied •
and collected by the Government of India but shall be
assigned to the States in the manner provided in clause (2), C
namely:

(a) duties in respect of succession to property other "
than agricultural land;

'f (b) estate duty in respect of property other than D
,) agricultural land;

(c) terminal taxes on goods or passengers carried by
railway, sea or air;

(d) taxes on railway fares and freights; E

(e) taxes other than stamp duties on transactions in
stock-exchanges and futures markets;

(f) taxes on the sale or purchase of newspapers and
on advertisements published therein; F

(g) taxes on the sale ·or purchase of goods other than
newspapers, where such sale or purchases takes
place in the course of inter-State trade or
commer~.

G
(2) The net proceeds in any financial year of any such
duty or tax, except in so far as those proceeds represent
proceeds attributable to States specified in Part C of the
First Schedule, shall not form part of the Consolidated
Fund of India, but shall be assigned to the States within
which that duty or tax is leviable· in thafyear, and shall be H
332 SUPREME COURT REPORTS 11989] 2 S.C.R.

A distributed among those States in accordance with such
principles of distribution as may be formulated by Parlia-
ment bylaw.

(3) Parliament may by law formulate principles for
determining when a sale or purchase of goods takes place in
B
the course of Inter-State trade or commerce."
~
By the above amendment Parliament was empowered to levy tax }~
on the sale or purchase of goods other than newspapers where such
sale or purchase took place in the course of Inter-State trade or com-
merce. and was also empowered to formulate by law principles for
C determining when a sale or purchase of goods took pface in the course
of Inter-State trade or commerce.

By the very same Sixth Amendment Article 286 of the Constitu·
ti on was amended. The Explanation to clause ( 1) was omitted by that
D Aiµendment. Clauses (2) and (3) of Article 286 were substituted by
two new clauses. After such amendment Article 286 of the Constitu-
tion read thus:

"286. Restrictions as to imposition of tax on the sale or
purchase of goods-(1) No law of a State shall impose, or ~
authorise the imposition of, a tax on the sale or purchase of
E goods where such sale or purchase takes place-

(a) outside the State; or

(b) in the course of the import of the goods into, or
export of the goods out of, the territory of India.
F
(2) Parliament may by law formulate principles for
determining when a sale or purchase of goods takes place in
any of the ways mentioned in clause ( 1).
j
(3) Any law of a State shall, in so far as it imposes, or
G authorises the imposition of, a tax on the sale or purchase
of goods declared by Parliament by law to be of special
importance in Inter-State trade or commerce, be subject to
such.restrictions and conditions in regard to the system of
levy, rates and other incidents of the tax as Parliament. may
by law specify."
H
,._.

BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.I 333

Pursuant to the power conferred on it Parliament enacted the
A
Central Sales Tax Act 1956 which received the assent of the President
on 21st December, 1956. The said Act was passed to formulate princi-
ples for determining when a sale or purchase of goods took place in the
course of Inter-State trade or commerce of outside a State or in the
course of import into or export from India, to provide for the levy,
.collection and distribution of taxes on sales of goods -in the course of B
,Inter-State trade or commerce and to declare certain goods to be of
special importance in Jnter-State trade or commerce and specify the
restrictions and conditions to which State laws imposing taxes on the
- sale, or purchase of such goods of special importance shall be subject.
Section 6 of the Central Sales Tax Act explained when a sale or pur-
chase of goods in the course of lnter:State trade or commerce took
place-. Section 4 of the said ,Act explained when a sale or purchase of C
goods took place outside a State and Section 6 explained when a sale
or purchase of goods took place in the course of import or export for
purposes of that Act. Section 14. of the Central Sales Tax Act
enumerated the goods which were considered to be of special impor-
tance in Inter-State trade or commerce and section 15 of that Act set D
out restrictions and conditions· in fegard to tax on sale or purchase of
declared goods within a State. Secti1m 15 of the Central Sales Tax Act
as it is in force today reads thus:
.-i-
'
"15. Restrictions and conditions in regard to tax on sale or
purchase of declared goods within a State. Every sales tax E
law of State shall, in so far as it imposes or authorises the
imposition of a tax on the sale or purchase of declared
goods, be subject to the following restrictions and condi-
tiops, namely:

(a) the tax payable under that law in respect of any F
sale or purchase of such goods inside the State
shall not . exceed four per cent of the sale or
purchase price thereof, and such tax shall not be
levied at more than one stage;

_ (b) where a tax has been levied under that law in G
respect of the sale or purchase inside the State of

- any declared goods and such goods are sold in the
course of Inter-State trade or commerce, and tax
has been paid under this Act in respect of the sale·
of such goods in the course of Inter-State trade or
. cominerce, the tax levied under such law shall be H
334 SUPREME COURT REPORTS [1989) 2 S.C.R.

A
reimbursed to the person making such sale in the +
course of Inter-State trade or commerce, in such
manner and subject to such conditions as may be
provided in any law in force in that State;

(c) where a tax has been levied under that law in
B respect of the sale or p11rchase inside the State of
any paddy referred to in sub-clause (i) of clause t--
(i) of section 14, the tax leviable on rice procured >--
out qf such paddy shall be reduced by the amount
of tax levied on such paddy; ~

(d) each of the pulses>referred to in clause (vi-a) of
c section 14, whether .whole or &eparated, and
whether with or without husk, shall be treated as
--t-..
a single commodity for the purposes of levy of tax
under that law."

D By the time the Constitution (Sixth Amendment) Act and the
Central Sales Tax Act, 1956 came into force controversy had arisen
before some of the High Courts about the liability of contractors who
had undertaken to carry out works contracts to pay sales tax on the
transfer of property in the goods involved in works contracts. ......
E In Gannon Dunkerley and Co. (Madras) Ltd. v. State of Madras,
A.LR. 1954 Mad. 1130 the assessees were carrying on business as
engineers and contractors. Their business consisted mainly of execu-
tion of contracts for constructons of buildings, bridges, dams, roads and
structural contracts of all kinds. During the assessment year the return
made by the assessees showed as many as 47 contracts, most of which 'r:-
F were building contracts, which were executed by the assessees. From
th~ total· of the amount which the assessees received in respect of
sanitary contracts and other contracts 20% and 30% respectively were _.,
deducted for labour and the balance was taken as the turnover of the
assessees for the assessment year in question. Sales tax was levied on
the said balance treating it as taxable turnover under the Madras
G General Sales Tax Act, 1939. The assessees questfoped the levy of
sales tax on the said amount treated as taxable turnover on the ground
r-
that there was no sale of goods as understood in India and, therefore,
no sales tax could be levied on any portion of the amount which was •
received by the assessees from the persons for whose benefit they had
constructed buildings. It was urged on behalf of the assessees that
H there was no element of sale of the materials in a building contract and
BUILDERS ASSCN. v. U.0.1. IVENKATARAMIAH, J.] 335

that such a contract was one entire and indivisible. Unless the contract
was completed, the builder was not entitled to the price fixed under I\
the contract or ascertainable under the terms of the contract. The
property in the materials passed to the owner of the land not by virtue
of the delivery of the materials as goods under and in pursuance of an.
,1 agreement of sale which stipulated a price for the materials. The pro-
~ perty in the materials passed to the owner of the land because they B
'j were fixed in pursuance ·of the contract to build and along with the
corpus, which ultimately· resulted by the erection of the super-
structure, the materials also passed to the owner of the land. It was
urged thafa contract to build was not a contract to sell goods used in
the construction ofa building. The High Court of Madras on a consi-
deration of the submissions made before it came to the conclusion that
the transactions in question were not contracts for sale of goods as C
defined under the provisions of the Sale of Goods Act, 1930 which was
in force on the date on which the Constitution came into force and
therefore the assessees were not liable to pay sales tax on the amounts
received by them from the persons for whom they had constructed
buildings etc. during the year of assessment. But a petition filed by the o
very same assessees for similar relief in the Gannon Dunkerley & Co.
Madras (Private) Ltd. v. Sales Tax-Officer, Mattancheri, A.LR. 1957
Kerala 146 was dismissed by the Kerala High Court affirming the
imposition of sales tax on the turnover relating to construction works
and upholding the rules providing for apportionment of the,determina-
tion of the taxable turnover on a percentage basis. In Mohamed E

-- Khasim v. State of Mysore, [19551 VI Sales Tax Cases 211, the Mysore
High Court held that the provisions of the Mysore Sales Tax Act
imposing sales tax on construction of buildings under works contract
we_re valilf and further upheld the determination of the· iaxable
"'"'(
turnover on percentage basis. The competence of the State Legislature
to levy sales tax on the supply of building materials for execution of F
, building contracts came up for consideration before the Nagpur High
Court in Pandit Banarsi Das v. State of Madhya Pradesh and brs.,
[19551 VI Sales Tax Cases 93. The ass~ssees in the said case were.
Madhya Pradesh Contractors' Association and the Jabalpur
Contractors' Association. They instituted a petition before the Nagpur
High Court through their President and Secretary questioning the G
power of the State Legislature to levy sales tax on the turnover consist-
, ing of the amounts received by the. building contractors from the
persons for whom they had constructed buildings by supplying the
required· materials·. They relied upon the decision of the High Court of
Madras in Gannon Dunkerley's case (supra). The Nagpur High Court
while declining tofollow the decision of the High Court of Madras was H
336 SUPREME COURT REPORTS 11989] 2 S.C.R.
4--
of opinion that the State Legislature could pick out a sale from the
A
composite transaction of a building contract which included transfer of
property in materials and could make the portion attributable to the
cost of such materials subject to payment of sales tax in exercise of its
undoubted and plenary po:wers. Jubilee Engineering Co. Ltd. v. Sales
Tax Officer, Hyderabad City and Ors., A.LR. 1956 Hyd. 79 was a case
'
B decided by the High Court of Hyderabad. In that case that High Court t-
particular building or to make a particular thing, the materials ~
held that in a works contract where a person undertook to build a

involved in the building or making of the finished product, could not
be the subject matter of sale because there was no agreement to sell
the materials nor was price of the goods fixed. It was also found that in
-
cases there wa~ no passing of the title in those goods as such
c such
except as part of the building or the thing in which they were embed- 4-
ded. It accordingly held that the amount received by a building con-
tractor from the person for whom he had constructed the building
could not be taxed under the sales tax law of the State of Hyderabad.
A similar question aro~ before the High Court of Rajasthan in
Q Bhuramal and Ors. v. State of Rajasthan, A.LR. 1957 Rajasthan 104.
The High Court of Rajasth;m held that the defmition of "dealer" in
the Rajasthan Sales Tax Act .• 1954 included not only those who sold
goods, but also those who supplied goods, whether on commission, or
for remuneration or otherwise· and the said definition was very wide -iL
and included persons like the building contractors who in the course of
E their business as building contractors supplied goods to those who gave
them contracts. Since the said supply was not gratis such building
contractors should be held to be dealers within the meaning of that
expression in the Rajasthan Sales Tax Act.
-
_Ultimately the question whether the cost of the goods supplied
fl by a building contractor in the course of the construction of building
could be subjected to payment of sales tax was finally resolved by this
Court in State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd.,
[1955] S.C.R. 379 which was an appeal filed against the decision of the
High Court of Madras in Gannon Dunkerley & Co. (Madras) Ltd. v.
The State of Madras, (supra).'in this case this Court held that on a true
c} interpretation the expression "sale of goods" meant an agreement
between the parties for the sale of the very goods in which eventually
a
property passed. In building contract where the agreement between
the parties was that the contractor should construct the building
according to the specifications contained in the agreement and in con-
sideration therefor received payment as provided therein, there was
H, neither a contract to sell the materials used in the construction nor the
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.[ 337

property passed therein as movables. This Court further held that the A
expression "sale of goods" was at the time when the Government of
India Act, 1935 was enacted, a term of well-recognised.legal import in
the general law relating to sale of goods and in the legislative practice
relating to that topic and should be interpreted in Entry 48 in List II in
Schedule VII of the Government of India Act, 1935 as having the same
.1 meaning as in the Sale of Goods Act, 1930. This Court. further held B
\
1
that in a building contract which was one, entire and indivisible, there
·'~. was no sale of goods and it was not within the competence of the
Provincial Legislature under Entry 48 in List II in Schedule VII of the

- Government of India Act, 1935, to impose a tax on the supply of the
materials used in such a contract treating it as a sale. The above deci-
sion though it was rendered on ihe basis of the provisions in the C
Government of India Act, 1935 is .equally applicable to the provisions
found in Entry 54 of List II of Schedule VII of the Constitution. In the
above decision, the decision of the Nagpur High Court, the Rajasthan
High Court, the Mysore High Court and the Kerala High Court refer-
red to above were overruled and the decision of the Hyderabad High
Court and the decision of the Madras High Court against which the D
·above appeal had been filed were affirmed. By virtue of tloe above
decision of this Court no sales tax could be levied on the amounts
received under a works contract by a building contractor even though
he had supplied goods for the construction of the buildings ..

In addition to the building contracts referred to above, certain E
other kinds of transactions were also held to be not sales liable to
payment of sales tax by this Court even though they involved transfer
of property in goods. In Mis. New India Sugar Mills Ltd. v. Commis-
sioner of Sales Tax, Bihar, 1!9631 Supp. 2 S.C.R. 459 this Court took
the view that in the transfer of controlled commodities in pursuance of
a direction under a control order, the element of volition by the seller, F
or mutual assent, was absent and therefore there was no sale as
defined in the. Sale of Goods Act, 1930. However, in Oil and Natural
Gas Commission v. State of Bihar and Ors., 11977] 1 S.C.R. 354 this
Court had occasion to consider its earlier decisions with regard to the
liability of transfers of controlled commoditfos to be charged to sales
tax. This Court held that where there were any statutory compulsions, G
the statute should be treated as supplying the consensus and furnishing
the modality of the consensus. In Vishnu Agencies (Pvt.) Ltd. etc. v.
... Commercial Tax Officer & Ors. etc., [1978) 2 S.C.R. 433 the decision
in M/s. New India Sugar Mil/s's (supra) case was held to be not good
law. Even after the decision in Vishnu Agencies's case (supra) there
was a certain area of doubt about the liability of transactions not H
338 SUPREME COURT REPORTS [19891 2 S.C.R.

consensual in nature in which property in goods passed to exigibility to ......
A
sales tax.

Devices by way of leases of films had also been resulting in
avoidance of sales tax. The main right in regard to a film related to its
exploitation and after exploitation for a certain period of tinie, in most
B cases, the film ceased to have any value.
~
There were also reports received by the State Governments to ,l

c
whom revenues from sales tax had been assigned, as to the large scale
avoidance of central sales tax leviable on Inter-State sales of goods
through the device of consignment of goods from one State to another.

In Northern India Caterers (India) Ltd. v. Lt. Governor of Delhi,
[1979) 1 S.C.R. 557 this Court held that there was no sale when food -+ -
-
and drink were supplied to guests residing in the hotel and that supply
of meals was essentially in the nature of a service provided to the
guests and could not be identified as a transaction of sale. This Court
D declined to accept the position that the Revenue was entitled to split
up the transaction into two parts, one of service and the other of sale
of foodstuffs and accordingly the proprietor of a restaurant who pro-
vided many services in addition to the supply of food was not liable to
pay sales tax on the value of the goods supplied by him.
~
E The various problems which arose on account of the above deci-
sions were referred to the Law Commission of India and its aovice was
sought as to the manner in which the types of transactions involved in
the above decisions could be made exigible to sales tax. The Law
Commission considered these matters in its 61st Report and recom-
-
mended inter alia certain amendments to the Constitution, if as a
F matter of administrative policy it was decided to levy sales tax on
transactions of the nature mentioned above. There were also comp-
laints_ from the States that there was a large scale leakage of sales tax
revenue by the adoption of devices such as hire purchase system. In
the year 1982 Parliament passed the 46th Amendment amending the
Constitution in several respects in order to bring many of the transac-
G tions, in which property in goods passed but were not considered as
sales for the purpose of levy of sales tax, within the scope of the power
of the States to levy sales tax.

By the 46th Amendment a new clause, namely clause (29A) was
introduced in article 349 of the Constitution. Clause (30A) of Article
H 366 of the Constitution reads thus:
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.] 339

"366. Definitions.-ln.this Constitution, unless the context
otherwise requires, the following expressions have the
A
meaning hereby respectively assigned to them, that is to
say .................. .

(29A) 'tax on the safo or purchase of goods includes-
B
(a) a tax on the transfer, otherwise than in pursuance of a
contract, of property in any goods for cash, deferred pay-

- ment or other valuable consideration;

(b) a tax on the transfer of property in goods (whether as
goods or in some other form) involved in the execution of a
works contract; c
(c) a tax on the delivery of goods on hire-purchase or any
system of payment by instalments;

( d) a tax on the transfer of the right to use any goods. for D
any purpose .(whether or not for a specified period). for
cash, deferred payment or otber valuable consideration;

(e) a tax on the supply of goods by any unincorporated as-
sociation or body of Pt:rsons to a member thereof for cash,
deferred payment or other valuable consideration; E

(f) a tax on the supply, by way of or as part of any service
or in any· other manner whatsoever, of goods, being food or
any other article for human consumption or any drink
(whether or not intoxicating), where such supply or
service, is for cash, deferred payment or other valuable F
consideration, ·

and such transfer, delivery or supply of any goods shall be
deemed to be a sale of those goods by the person ·making
the transfer, delivery or supply and a p\!rchase of those
.goods by the person to whom such transfer, delivery or G
. supply is made;"

A new entry was inserted in List I of the Seventh Schedule to the
· Constitution. as Entry 92-F to enable the levy of tax on the consignment
of goods where such consignment took place in the course of Inter-
State trade of commerce; H
340 SUPREME COURT REPORTS [19891 2 s.c.R.

"92-F. Truces on the consignment of goods (whether the
A
consignment is to the person making it or to any other
person), where such consignment takes place in the course
of Inter-State trade or commerce. 1'

clause (1) of article 269 of amended by adding sub-clause (h)
B thereto. clause (a) of that article was amended to enable Parliament
to formulate by law principles for determining when a consignment ·of
goods took place in the course of Inter-State trade or commerce. After
the amendment the relevant portion of article 269 of the Constitution
reads thus:

"269. Truces levied and collected by the Union but
-
c assigned to the States.-(1) The following duties and truces +·
shall be levied and collected by the Government of India
but shall be assigned to the States in the manner provided
in clause (2), namely ................................ .

D
(h) truces on the consignment of goods (whether the con-
signment is to the person making it or to any other person),
w!.lere such consignment takes place in the course of Inter-
State trade or commerce . . . . . . . . . . . . . . . . . . . . . . *
E (3) parliament may by law formulate principles for deter-
mining when a sale or purchase of, or consignment of,
goods takes place in the course of Inter-State trade or
commerce.''

Iiy the 46th amendment article 286 of the Constitution also was
~ amended by substituting clause (3) thereof by a new clause. After the
amendment clause (3) of article 286 reads thus:
-~.
"286. Restrictions as to imposition of tax on the sale or
purchase pf goods ...................... .

G (3) Any law of a State shall, in so far as it imposes, or
authorises the imposition of,-

(a) a truc on the sale or purchase of goods declared by
Parliament by law to be of special importance in inter-State
trade or commerce; or
H
342 SUPREME COURT REPORTS 119891 2 s.c.il

A ecuted or whether any part of the goods so used in a works contract ~
had been imported from abroad on account of the person who had
assigned the contract or whether any part of the goods, such as, iron
and steel etc. which were declared goods, had already suffered sales
tax at an earlier point in the State and whether on such goods the tax
whictT was being levied exceeded the limit prescribed by section 15 of
B the Central Sales Tax Act, 1956. They did not also take into considera-
tion whether the sale of the goods in question had been exempted
under the sales tax laws of the State from payment of sales-tax or
whether it had already suffered payment of tax earlier where the sales
tax law of the State had prescribed that the sale of such goods could be
subjected to the levy of sales tax at a single point. Aggrieved by the
c levy sales tax on the turnover relating to works contracts in the above
manner, the petitioners and the appellants have filed these petitions
and appeals.

The petitioners and the appellants have pressed before us in
these cases only two points, namely, (i) that the 46th Amendment is
D unconstitutional because it has not been ratified by the Legislatures of
not less than one-half of the States by resolutions passed to that effect
.by those Legislatures before the Bill which led to the amendment in
question was presented to the President for assent; and (ii) that it was
not open to the States to ignore the provisions contained in Article 286
of the Constitution and the provisions of the Central Sales Tax Act,
-l/-!
E 1956 while making assessments under the sales tax laws passed by the

-
Legislatures of the States.

By an order made by this Court on 20th of September, 1988
notices were issued to the Attorney General for India and the
Advocates-General for the concerned States. The Attorney-General
F and some of the Advocates General appeared before us in response to
the notices issued to them and made their submissions.

-~
The first contention raised before us regarding the constitution-
ality of the 46th Amendment need not detain us Jong. This contention
G was based on the assumption that the Legislatures of not less than
one-half of the States which were in existence during the relevant -~
period had not ratified the Bill which ultimately became the 46th
Amendment before the President gave his assent. It was argued that
such ratification was necessary since the provisions contained in the
46th Amendment had the effect of enlarging the scope of Entry 34 of
H List II of the Seventh Schedule to the Constitution by empowering the
. .
~-" ·.·:~~
·~

~
~~t~
.., ,
"BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J .) 341 . - ~

~-

(b) a tax on the sale or purchase of goods, being a tax of A
the nature referred in sub-clause (b) , sub-clause (c) or.sub-
clause (d) of clause (29-A) ·o f article 366, ,,

be subjected to such restrictions and conditions in regard to
the system of levy, rates and other incidents ·of the tax as
Parliament may by law specify." B

The 46th amendment also validated laws. levying tax and also
collection by way of tax under such law subject to the conditions
mentioned therein.
&.

On the passing of the 46th Amendment the State Governments
after making necessary amendments in ·their iaws commenced ~o levy
c ,; ,

~-+· sales t~ on the turnover of the works contracts entered into by the
building contractors for constructing houses , factories , bridges etc. In
some States taxable turnover was determined by deducting the money
spent on labour engaged in connection with the execution of the works
contracts from the amount received by the contractor for the execution D
of the works contracts. In some other States a certain fixed percentage
of the total turnover was deducted from the total turnover as labour
charges before arriving at the taxable turnover. Each State adopted its
own method of determining taxable turnover either by framing rules
A under its sales tax law or by issuing administrative directions. It is not
necessary for purposes of this judgment to refer in detail to the various E
patterns of law in force in the States and the· rules or administrative
~ instructions made or issued thereunder. It is sufficient to say that the
methods adopted b.y the States for determining the taxable turnover
relating to works contracts for purposes of levy of sales tax were such
· that sales tax had to ti~ paid by the building contractors not merely on
~
the value of materials supplied by them in connection with the works F
contracts but also on the expenditure they had incurred in securing the

.. services of architects and engineers who had supervised the execution
of the works and also on the amount which they were entitled to
receive for supervising the execution of the works. While levying sales
tax on the price of the materia.ls supplied for the construction of
houses, factories, bridges etc. the sales tax authorities of the States did G
--+ I not take into account the conditions and restrictions imposed by Arti-
cle 286 of the Censtitution and the provisions of the Central Sales Tax
Act, 1956. The assessing authorities did not make any attempt to as-
certain whether the sales of the goods involved in a execution of works
contract had taken place in favour of the person who had assigned the
contract outside the S~ate in~~ich the works contract was being ex- H

.· '. ii,;:;
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.] 343

~. Legislatures of States to levy Sales-Tax on the turnover relating to the
transactions referred to in sub-clauses (a) to (f) of clause (29-A) of A
Article 366 of the Constitution which they could not have done before
the 46th Amendment. It was contended that irrespective of the fact
whether the Amendment of an entry in any of the Lists of the Seventh
Schedule to the Constitution had the effect of either curtailing or
} enlarging the powers of Parliament or the Legislatures of States, a Bill B
~ making revision for such Amendment had to be ratified by Legisla-
' _J' lure~ of not less than one-half of the States by resolutions passed to
· that effect before such a Bill was presented to the President for assent
in view of the express provisions contained in clause (c) of the proviso
to Article 368(2) of the Constitution.

At the hearing of the above case the learned Attorney-General c
for India produced before us the Memorandum dated the 31st
January, 1982 signed by the Secretary-General of the Ra jya Sabha
which reads thus:

"RAJYA SABHA SECRETARIAT D

PARLIAMENT HOUSE,
NEW DELHI.

No. RS.1/21/81-B
E

... Dated the 31st January, 1982

MEMORANDUM

In pursuance of article 368 of the Constitution of
India, the assent copy of the Constitution (Forty-sixth F
Amendment) Bill, is presented to the Pres.ident. This Bill
has been passed by the Houses of Parliament and has been
also ratified by the Legislatures of not less than one-half of
the States in accordance with the provision of the proviso
to clause (2) of article 368 of the Constitution. Legislatures
of the following States have passed resolutions ratifying the G
amendments:

1. Haryana
2. Himachal Pradesh
3. Karnataka
4. Madhya Pradesh H
5. Maharashtra
344 SUPREME COURT REPORTS [1989] 2 S.C.R.

A 6. Manipur
7. Meghalaya
8. Orissa
9. Punjab
10. Rajasthan
11. Sikkim
B 12. Tamil Nadu

A copy each of the letters received from these Legis-
latures is placed below.

Sd/-
(SUDARSHAN AGARWAL)
c Secretary-General

To

The Secretary to the President,
D (Through the Secretary, Ministry of Law)"

The Attorney-General has also produced before us the file con-
taining the resolutions passed by the Legislatures of the 12 States
referred to in the Memorandum, set out above. We are satisfied that ··\-'-
there has been due compliance of the provisions contained in the pro-
E viso to Article 368(2) 'of the Constitution. We, therefore, reject the
first contention. Before proceeding further, we should observe that
there would have been no occasion for an argument of this type being •
urged in Court if at the commencement of the Act it had been stated
that the Bill in question had been presented to the President for his
assent after it had been duly ratified by the required number of Legis- y
F latures of States. We hope that this suggestion will be followed by the
Central Secretariat hereafter since we found that eyen the Attomey-
General w·as not quite sure till the case was taken up for hearing that
the Bill which had become the 46th Amendment had been duly ratified ·•
by the required number of States.
'
G We shall now proceed to consider the other contention of the
petitioners and the appellants, namely, that the States were bound to
comply with the provisions of Article 286 of the Constitution and the
provisions of the Central Sales Tax Act, 1956, even while levying sales
tax on the turnover relating to the transactions described in sub-clause
(b) of clause (29-A) of Article 366 of the Constitution. The gro'ltnds
H urged on behalf of the petitioners and the appellants may be sum-
BUILDERS ASSCN. v. U.0.1. (VENKATARAMIAH, J.] 345

marised thus~ The object of the 46th Amendment is to convert what is
A
not a sale into a sale. A transfer of property·'in goods involved in the
execution of a works contract which was held by this Court in the State
of Madras v. Gannon Dunkerley & Co., (Madras) Ltd. (supra) to be
nor a sale is deemed by a fiction of law to be a sale and is made taxable
as such. In no other respect does the 46th Amendment enlarge the
-1 power of the States to levy sales-tax. Articles 269, 286, 366 (29-A), B
' l Entry 92A in List I of the Seventh Schedule and Entry 54 in List II of
··-"\the Seventh Schedule to the Constitution should be read together.
Reading the above provisions together the position which emerges
· may be. summed up as follows: The 46th Amendment has no bearing
on the location of the sale. It does not deem an outside sale to be an

-. + inside sale. It does not confer on the States the power to tax sales
outside the State. Therefore, if in the process of executing a works c
contract, a transfer of property in the goods takes place out~ide the
State, the State would: have no power to levy sales-tax on such a
transfer. The 46th Amendment does not deem an Int~r-State sale to be
an inter State sale.':lt does not•confer on the State the power to tax
inter-State sales. Therefore, if in the•process of executing a works ··o
contract a transfer of property ,in goods takes place in the course of
inter-State sale, the state would have no power to levy sales-tax on
such a transfer. The 46th Amendment does not confer on the State the
~ power to levy sales-tax on a sale in the course of import. Therefore, if
in the process of executing a works contract, a transfer of property in
goods takes place in the course of import, the State would have no :E
power to levy sales-tai< on such transfer. The price of goods supplied
by a person who has assigned the contract for the purpose of executing'
a works contract cannot be treated as a part of the taxable turnover. ·
The. restrictions and conditions contained in section 15 of the Central
Sales-tax Act, 1956, on the power of the States to levy tax on the sale
of declared goods apply equally and fully to transfer of property ·in F
goods under works contracts, even as they apply to ordinary sales.
Therefore, if there is a transfer of property in declared goods-for
example steel products-in the process of execution of works connict,
the State can levy tax only at 4 per cent and only at one stage. It is clear
that the entire works contract is not deemed by the 46th Amendment
to be a sale. Therefore only the price reasonably allocable to goods G
transferred under works contracts can be taxed, and not the totality of
the consideration paid for the works contract. If goods-for example
fuel and power-are used in the process of executing a works contract
but are consumed in the process, the property in such goods cannot
conceivably be transferred, because the goods themselves cease to
exist. Such goods cannot be the sut>j~t-matter for the levy of sales tax H
346 SUPREME COURT REPORTS [1989] 2 S.C.R.

A at all. These in brief are the contentions of the petitioners and the
appeilants.

The above-mentioned contentions of the petitioners and the
appellants are met by the States thns. When a works contract is
executed property does not pass as a movable property unless there is 1
B an express agreement stating that the properties in such movables will ~
pass to the person who has assigned the contract as and when the Ii.
goods are used in the constructions of the building. In the absence.of''
any such agreement transfer of property in goods passes not as
movables as such but by accretion and in an unidentifiable and indivisi-
ble manner. In all such cases it is not possible to. disintegrate the
contract into a contract for sale of goods and a contract for work and
-
C labour only. When a house or a factory or a bridge constructed by a +"
building contractor is handed over to the person who had assigned the
contract, what is handed-over is a conglomerate of all the goods used
in the construction of the building which was different from the
specific goods used in the construction. Sub-clause (b) of clause (29-A)
D of Article 366 of the Constitution has conferred on the Legislatures of
States the power to levy tax on works contract which is independent of
the power conferred oil the Legislatures of States under Entry 54 of
the State List. It is thus argued that it was not possible to break up the
house, factory or bridge etc. which is constructed by a building con- y·
tractor into individual items of goods and to tax the transfer of pro-

-
E perty in each of them 'in accordance with the provisions contained in
Article 286 of the Constitution and the Cenral Sales Tax Act, 1956. It
was further urged that in the case of a works contract there could not
be a sale of goods which had taken place outside the State in which the
work was executed, there could not be any sale of the goods in the
course of import into India, there could not be any sale or purchase of Y
F goods which had taken place in the course of Inter-State trade or
commerce an_d there could not be a sale of any declared goods attract-
ing section 15 of the Central Sales Act, 1956 since a house, & factory or .._
a bridge was not one of those items specified as declared goods under
section 14 of the said Act. It was next contended that since in no sales
tax law in force in any part of India it was stated that the turnover
G relating to a works contract was subject to payment of sales tax at one
point only the questioh of considering whether the levy of sales tax
relating to a works contract could be held to be bad on account of the
fact that certain goods which had been used in the construction had
suffered tax earlier did not arise. In other words it was urged that the
goods involved in a works contract were different from the works
H contract. It was, however, argued that if any goods had been supplied
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH. J.] 347

by the person forwhose benefit a building, factory or bridge was being
A
constructed for the purpose of such construction the value of those
goods would not be included iu the taxable turnover.

Before proceeding further it is necessary to understand what
sub-clause (b) of clause 29-A 1>f Article 366 of the Constitution means.
-~ Article 366·is the definition clause of the Constitution. It says th<1t in B
the Constitution unless the context otherwise requires, the expressions
~ defined in that article have the meanings respectively assigned to them
in that article. The expression 'goods' is defined in clause (12) of
Article 366 of the Constitution as including all materials, commodities
and articles. It is true that in the State of Madrasv. Gannon Dunkerley
. & Co. (Madras) Ltd., (supra) this Court held that a works contract was
c
C'•+ an indivisible contra.::! and the turnover of the goods used in the execu-
,tion of.the works contract cquld not, therefore, become exlgible' to ·{:'

·isales-tax. It \vas in order to OYercome the effect of _the said decision <~
Parliame11t amended Article 366 by introducing sub-clause (b) of
clause (29:A)". Sub-clause (b) of clause "(29-A) states that 'tax on the .."~:
~

sale or purchase of goods' includes among other things a tax on the D
tr.ansfer of property. in the goods (whether as goods or in some other . "'
form)' invo_lved_ in the execution of a works contract. It does not say
.that a tax on the sale or purchase of goods included a tax on 1.the
''-..! . amount paid for the execution of a works contract. It refers to a tax on
the transfer of property in goods (whether as goods or in some other
form) involved in the execution of a works contract. The emphasis is E
.on tire transfer of property in goods (whether as goods or in some
other form). The latter part of. clause (29-A) of Article 366 of the c
,.
Constitution makes the position very clear. While referring to the
transfer, delivery or supply of any goods that takes place as per sub-
cleuses (a) to (f) of clause (29-A), the latter part of clause (29-A) says
°"' that. 'such transfer, .delivery or supply qf any goods' shall be deemed to F
be a sale of those goods by the person making the transfer, delivery or
"
,. supply and a purchase of those goods by the person to whom such
Jr.ansfer; delivery or supply is made. Hence, a transfer of property in
~ads ?nd~r sub-clause· (b) of clause (29-A) is deemed to be a sale of
e goods l)lvolved in the execution of a works contract by the person
~-t makiR-g the transfer and a purchase of those goods by the person to G
whom such transfer is made. The object of the new definition intro-
duced in clause (29-A) of Article 366:of the Constitution is, therefore,
to enlarge the scope of 'tax on sale or purchase of goods' wherever it
occurs in the Constitution so that it may include within its scope the
transfer, delivery or supply of goods that may take place under any of
the transactions referred to in sub-clause '(a) -to (f) thereof wherever H
•
348 SUPREME COURT REPORTS [1989] 2 S.C.R.
~
such transfer, delivery or supply becomes subject to levy of sales tax. :~
A
So construed the expression 'tax on the sale or purchase of goods' in
~t
Entry 54 of the State List, therefore, includes a tax on the transfer of
,,) property in goods (whether as goods or in some other form) involved
in the execuiion of a works contract also. The tax leviable by virtue of
sub-clause (b) of clause (29-A) of Article 366 of the Constitution thus
B becomes subject lei the same discipline to which any levy under Entry
54 of the State List is made subject to under the: Constitution. The
t--
~

position is the same when we look at Article 286 of the Constitution. ,l

-
,.
Clause ( 1) of Article 286 says that no law of a State shall impose, or '
'authorise the imposition of, a tax on the sale or purchase of goods
;~
where.such sale or purchase takes place-(a) outside the State; or (b)
in the course of the import of the goods into, or export of the goods out
c cit,' the territory of India. Here again we have to read the expression 'a
-+~-
Tax on the sale or purchase of goods' found in Article. 286 as including
the transfer of goods referred to in sub-clause (b) of clause (29-A) of
.. Article 366 which is deemed to be a sale of goods and the tax leviable 'ij
thereon would be subject to the terms of clause (1) of Article 286.
11
D Similarly the restrictions mentioned in clause (2) of Article 286 of
the Constitution which says that Parliament may by law formulate
principles for determining when a sale or purchase of goods takes
place in any of the ways mentii;med. in clause (1) of Article 286 would
also be attracted to a transfer of goods contemplated under Article .y
366(29A)(b ). Similarly clause (3) of Article 286 is also applicable to a
E tax on a transfer of property referred to in sub-clause (b) of clause
(29-A) of Article 366. Clause (3) of Article 286 consists of two parts.
Sub-clause (a) of clause (3) of Article 286 deals with a tax on the sale \!:-
or purchase of goods declared by Parliament by law to be of special .
importance in intet·State or commerce, which is generally applicabfe
to all sales including the transfer, supply or delivery of goods which are y
F deemed to be sales under clause (29-A) of Article 366 of the Constitu-
lion. If any declared goods which are referred to in section 14 of the 1
Central Sales Tax Act, i956 are involved in such transfer, supply or
delivery,_ which is referred to in clause (29-A) of Article 366, the sales
... •
tax law of a State which provides for levy of sales tax thereon will have
to comply with the restrictions mentioned in section 15 of the Central
G Sales Tax. Act, 1956. Clause (b) is an additional provision which em- +~-
powers P'arliament to impose any additional restrictions or conditions
in regard to the levy of sales tax on transactions which will be deemed·
to be sales m:ider sub-clause (b) or sub-clause (c) or sub-clause (d)of
clause (29-A) of Article 366 of the Constitution. We do not find much
substance in the contention urged on behalf of the States that since
H sub-clause (b) of clause (3) of Article 286 9f the Constitution refers

i:,
BUILDERS ASSCN. v. U.0.1. (VENKATARAMIAH, J.) 349

~ only to the transactions referred to in sub-clauses (b), (c) and (d) of
clause (29-A) of Article 386, the transactions referred to under those A
three sub-clauses would not be subjected to any other restrictions sei
out in clause (1) or clause (2) or sub-clause (a) of clause (3) of Article
286 of the ConstiJ:ution. It may be that by virtue of sub-clause (b) of
clause (3) of Article 286 it is open to Parliament to impose some other
' restriction& or conditions which are. not generally applicable to all B
~ kinds of sales. That however cannot take the other parts to Article 286
'JI
inapplicable to the transactions which are deemed. to be sales under
·Article 366(WA) of the Constitution. We are of the view that all
transfers deliveries and supplies of goods referred to in clause (a) t~
(f) of clause (29-A) of Article 366 of the Constitution are subject to the
restrictions and conditions mentioned in clause (1), clause (2) and
sub-clause (a) of clause (3) of Article 366 of the Constiiution and the c
;:
-~+ transfers and deliveries that take place under sub-clauses (b), (c) and .•.

( d) of clause (29-A) of Article 366 of the Constitution are subject to an j
additional restriction mentioned in sub-clause (b) <if Article 286(3) of A
the Constitution.
D
It is useful to >efer at this stage to .the corresponding law' in
Australia. In Sydney Hydraulic and Central Engineering Co. v. Black-
wood & Son, 8N SWR 10 the Supreme Court of South Sales held
that the works contract entered into between the parties which came
up for consideration: in that case was one to do certain work and
te supp\y certain materials and not an agreement for the sale or E
delivery of the goods. Accordingly, no sales tax was payable
thereon. In 1932 the Legislature intervened and amended the statute
of 1930 by introducing a new provision, section 3(4) in the followirtg
terms: ..

"For th@ pw:p<Jse of this Act, a person shall be deemed to F
have sold goods, if, in the performance of any contract (11ot
being a contract for the sale of goods) under which he has
received, or is entitled to receive, valuable consideration,
he supplies goods the property in which (whether as goods
or in some other form) passes, under the terrns of the con-
tract, to some other pe~on." G
After the above amendment there arose a case in Australia
regarding the liability of a contractor to pay sales tax on the transfer of
goods involved in a works contract, namely: M.R. Hornibrook (Pty.)
Ltd. v. Federal Commissoner of Taxation., [19391 62 C.L.R. 272. The
relevant facts involved in that case were these; M.R. Momibrook H
350 SUPREME COURT REPORTS [1989] 2 S.C.R.

(Pty.) Ltd. was a builder and a contractor and in addition to
A
manufacturing ironwork and goods for use in contracts undertaken,
manufactured items of plants for its own use. In the years 1934 and
1935, M.R. Homibrook (Pty.) Ltd. constructed under contract for
Homibrook Highway Ltd. at a price set out in' the contract, the
Homibrook Highway connecting Ganagate and Redcliffe, aueens-
B land. Part of the highway consisted of a bridge of 1 3/4 miles in length ~-
over an arm of Moreton Day. The bridge was build on reinforced .
concrete piles, which were driven into the bed of the sea in series of .l..
three in line, each set of three being connected by a headstock of
reinforced concrete. The piles varied in length depending upon the
depth to which they had to be driven into the bed of the sea. They were
made of a mixture of cement, crushed metal, sand and water, and
C reinforced with steel bars. The piles were constructed on the bank of -f_r
Moreton Day adjacent to the site of the bridge. The headstock was
built in the same manner as the piles, So far as was known, concrete
piles of the class used in the construction of the bridge were not manu-
factured for sale anywhere in Australia, nor were they an article of
D commerce in Australia or anywhere else in the world. Such piles had
not h,een standardized because the construction of each pile depended
upon the particular load which it was to carry and the nature of the
ground into which it was to be driven, and therefore, each pile in a job
might be different from every other pile in it in length. When the sales V
tax authorities made an assessment in respect of the value of the piles,
E M.R. Homibrook (Pty.) Ltd. contended that the said piles had no sale ••
if:;
value within the meaning of the Sales Tax Assessment Acts, that the
said piles were not a 'manufacture' or 'goods manufactured' within the
meaning of the sales Tax Assessment Acts, and that the said piles
formed part of a bridge and were built on the job and were not article
of commerce and were nor procurable from any third person and were y
p not of a class of goods manufactured for sale by any person and there-
fore the price of piles was not liable to payment of sales tax. Latham,
C.J. with whom Justice Rich and Justice Starke agreed (Justice
McTieman dissenting) held as under: •
"Sec. 3(4) of the Act, referred to in part of above quoted,
G was at the relevant time in the following form: 'For the +~'
purposes of this Act, a person shall be deemed to have sold
goods if; in the performance of any contract under which he
has received, or is entitled to receive, valuable considera-
tion, he supplies goods the property in which (whether as
goods or in some other form) passes, under the terms of the '
H contract, to some other person.'
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.[ 351
~
In my opinion the commissioner is right in his con~
A
tention that this provision applies to the present case." The
appellant company, in the performance of a contract for
.building a bridge under which contract it was entitled to
. receive and doubtless has received valuable consideration,
has supplied goods, namely, reinforced concrete piles .
.-i' j . Such piles are plainly manufactured articles. They are chat- B
. tels:, They were intended to be incorporated in a structure
and were so incorporated. They lost their identity as goods
in .that structure. But this fact does not prevent the piles
from being goods any more than it prevents bricks or
stones, or nuts and bolts from being goods. The fact that
the goods were specially manufactured and designed for a
c
-4 particular purpose cannot be held to deprive them of. the
character of goods."

Sub-clause (b) of clause (29,A) of Article 366 of the Constitution
' of India more or less has adopted the language used iri section 3(4) of
the Australian Act. ))

Even after the decision of this Court in the State of Madras v.
Gannon Dunkerley & Co. (Madras) Ltd. (supra) it was quite possible
"'-I that where a contract entered into in connection with the construction
of a building consisted of two parts, namely, one part relating to the
sale of materials used in the construction of the building by the con- E

- tractor to the person who had assigned the contract and another part
dealing with the supply of labour and services, sales tax was leviable on
the goods which were agreed to be sold under the first part. But sales
tax could not be levied when the contract in question was a single and
~ indivisible works contract. After the 46th Amendment the works con-
tract which was an indivisible one is by a legal fiction altered into a F
contract which is divisible into one for sale of goods and the other for
At supply of labour and services. After the 46th Amendment, it has be-
come possible for the States to levy sales tax on the value of goods
involved in a works contract in the same way in which the sales tax was ~
~l',
leviable on the price of the goods and materials supplied in a quilding
.,.,.-+ contract which had been entered into in two distinct and separate parts G
as stated above. It could not have been the contention of the revenue
prior to the 46th Amendment that when the goods and materials had
been supplied under a distinct and separate contract by the contractor
for the purpose of construction of a building the assessment of sales tax
could be made ignoring the restrictions and conditions incorporated in
Article 286 of the Constitution. If that was the position can the States ·!H

·+.C
352 SUPREME COURT REPORTS [1989] 2 S.C.R.
.;1-
contended after the 46th Amendment under which by a legal fiction
A
the transfer of property in goods involved in a works contract was
made liable to payment of sales tax that they are not governed by
Article 286 while levying sales tax on sale of goods involved in a works
contract? They cannot do so. When the law creates a legal fiction such
fiction should be carried to its logical end. There should not be any
B hesitation in giving full effect to it. If the power to tax a sale in an
ordinary sense is subject to certain conditions and restrictions imposed
by the Constitution, the power to tax a transaction which is deemed to
,. t-
be a sale under Article 366(29-A) of the Constitution should also be
subject to the same restrictions and conditions. Ordinarily unless there '
is a contract to the contrary in the case of a works contract the pro-
perty in the goods used in the construction of a building passes to the
c owrier of the land on which the building is constructed, when the goods +-
or materials used are incorporated in the building. The contractor
becomes liable to pay the sales tax ordinarily when the goods or
materials are so used in the construction of the building and it is not
necessary to wait till the final bill is prepared for the entire work. In
·o Hudson's Building Contracts (8th edition) at page 362 it is stated thus:
"The well-known rule is that the property in all materials
and ·fittings, once incorporated in or affixed to a building,
will pass to the freeholder-quicquid plantatur solo, solo y
cedit. The employer under a building contract may not
E necessarily be the freeholder, but may be a lessee or
licensee, or even have no interest in the land at all, as in the
case of a sub-contract. But once the builder has affixed
materials, the property in them passes from him, and at
least as against him they become the absolute property of
his employer, whatever the latter's tenure of or title to the y
F land. The builder has no right to detach them from the soil
or building, even though the building owner may himself he
entitled to sever them as against some other person-e.g.,
as tenant's fixtures. Nor can the builder reclaim them if
they have been subsequently severed from the soil by the
•
building owner or anyone else. The principle was shortly
G and clearly stated by Blackbum J. in Appleby v. Reyers
[1867] L.R. 2 C.P. 651 at p. 659: 'Materials worked by one
-r-..
into the property of another become part of that property.
This is equally true whether it be fixed or movable prop-
erty. Bricks built into a wall become part of the house,
thread stitched into a coat which is under repair, or planks
H and nails and pitch worked into a ship under repair, be-
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.I 353

come part of the coat or the ship."
A
In Bmden and Watson-Building Contracts and Practice (6th
edition) (Pages 229-230) it is stated thus:

"VESTING OF PROPERTY IN MATERIALS
B
1. BYAFFIXING MATERIALS, ETC. TO TIIE
FREEHOLD.

Vesting of Materials when built into the work.-As ·
soon as materials of any description are built into a building
or other erection they cease to be the property of the con-
tractor and become that of the freeholder (a). c
Illustration

A burial company, having erected a memorial stone,
removed and sold it because it was not paid for-Held: The D
proper remedy of the company was to sue for payment and
they had no right to remove the stone (b).

And where the employer has only an interest le~
than a free hold, he has the same interest in the built-in
materials as he has in the land. Even if the employer detach E

-
them from the soil, the property in them does not revert to
the contractor, and he acquires no right to remove them o,n
the analogy of the law of landlord and tenant as to fixtures
(c). /

Illustration F
Where the yearly tenant of a house had, at his own
expense during his term, hung bells, but quitted the pre-
mises without removing them-Held: By remaining fixed
to the freehold after the expiration of the term they became
the property of the landlord (c). G

Until, however, the materials are actually built into
the .work in the absence of some stipulation intended to
pass the property in them when delivered on the site, they
remain the property of the contractor (d)."
H
354 SUPREME COURT REPORTS [1989] 2 S.C.R.

A
In Benjamin's Sale of Goods (3rd Edition) in para 43 at page 36 >-
it is stated thus:

"Chattel to be affixed to land or another chattei.-Where
work is to be done on the land of the employer or on a
chattel belonging to him, which involves the use or affixing
B of materials belonging to the person employed, the con-
l~'
tract will ordinarily be one for work and materials, the
property in the latter passing to the employer by accession ~r
~·· and not under any contract of sale. Sometimes, however,
there may instead be a sale of an article with an additional ,
and subsidiary agreement to affix it. The property then
passes before the article is affixed, by virtue of the contract
c of sale itself or an appropriation made under it."
~-

In view of the foregoing statements with regard to the passing of
the property in goods which are involved in works contract and the
legal fiction created by clause (29-A) of Article 366 of the Constitution
D it is difficult to agree with the contention of the States that the proper-
ties that are transferred to the owner in the execution of a works
contract are not the goods involved in the execution of the works
contract, but a conglomerate, that is the entire building that is actually
constructed. After the 46th Amendment it is not possible to accede to
the plea of the States that what is transferred in a works contract is the
y
E right in the immovable property.

We are surprised at the attitude of the States which have put
forward the plea that on the passing of the 46th Amendment the Con-
stitution had conferred on the States a larger freedom than what they
had before in regard to their power to levy sales-tax under Entry 54 of
-
F the State List. The 46th Amendment does no more than making it
-r
possible for the States to levy sales tax on the price of goods and
materials used in works contracts as if there was a sale of such goods
and materials. We do not accept the argument that sub-clause (b) of
Article 366(29A) sh.ould be read as being equivalent to a separate
•
entry in List II of the Seventh Schedule to the Constitution enabling
G the States to levy tax on sales and purchases independent of Entry 54
thereof. As the Constitution exists today the power of the States to +---
levy taxes on sales and purchases of goods including the "deemed"
sales and purchases of goods under clause (29A) of Article 366 is to be
found only in entry 54 and not outside it. We may recapitulate here the
observations of the Constitution Bench in the case of Bengal Immunity
H Company Ltd. (supra) in which this Court has held that the operative
BUILDERS ASSCN. v. U.0.1. [VENKATARAMIAH, J.l 355

provisions of the several parts of Article 286 which imposes restrictions
A
on the levy of sales tax by the States are intended to deal with different
topics and one could not be projected or read into another and each
one of them has to be obeyed while any sale or purchase is taxed under
Entry 54 of the State List.

We, therefore, declare tli~t sales tax laws passed by the Legisla- B
tures of States levying taxes. on the transfer of property in goods
·.ti (whether as goods or in some other form) involved in the execution of
· a works contract are subject to the restrictions and conditions -
mentioned in each clause or sub-clause of Article 286 of the Constitu-
tion. We, however, make it clear that the cases argued before and
considered by us relate to one specie of the generic concept of 'works-
contracts'. The case-book is full of the illustrations of the infinite c
variety of the manifestation of 'works-contracts'. Whatever might be
the situational differences of individual cases, the constitutional limita-
tions on the taxing-power of the state as are applicable to 'works-
contracts' represented by "Building-Contracts" in the context of the
expanded concept of "tax on the sale or purchase of goods" as consti- D
tutionally defined under Article 366(29A), would equally apply to
other species of 'works-contracts' with the requisite situational
.. modifications .

The Constitutional-Amendment in Article 366(29A) read with
the relevant taxation-entries has enabled the state to exert its taxing- E
power in an important area of social and economic life of the commu-
nity. In exerting this power particularly in relation to transfer of pro-
perty in goods involved in the execution of 'works-contracts' in build-
ing activity, in so far as it affects the housing-projects of the under-
.,,. privileged and weaker sections of society, the state might perhaps, be
pushing its taxation-power to the peripheries of the social limits of that F
power and, perhaps, even of the constitutional limits of that power in
dealing with unequals. In such class of cases 'Building-Activity' really
.-. relates to a basic subsistential necessity. It would be wise and
appropriate for the state to consider whether the requisite and
appropriate tlassifications should not be made of such building-activity
attendant with such social purposes for appropriate separate G
- - ; - treatment. These of course are matters for legislative concern and
wisdom.

Having interpreted the relevant provisions of the Constitution, as
stated above, we feel that it is unnecessary to take-up each and every
writ petition referred to above to express our opinion on the validity of H
356 SUPREME COURT REPORTS 119891 2 S.C.R.

A the statutory provisions and rules which are questioned before us. The
petitioners concerned are at liberty to approach the authorities under
the Sales Tax Act or the High Court concerned for necessary relief. It
is open to them to question the validity of the statutory provisions and
the rules made thereunder before the High Courts concerned. When
such petitions are filed the High Court will proceed to dispose of the
B cases in the light of this judgment. With these observations all the Writ
Petitions are disposed of.

The Civil Appeals filed against the orders of the High Courts,
however, shall be placed before the appropriate bench hearing tax
matters to decide the other questions raised in them including the
c validity of any statutory provision or rule in the light of this judgment.
+-~
These cases are accordingly disposed of. There is no order as to
costs.

Y.Lal Petitions disposed of.

y